00:01
So here we're thinking about trade, right? and we are thinking in particular about two countries, brazil and peru, who are producing coffee and soybeans, right? so there are two countries, two commodities, and the key thing is here that they're different, right? the cost to produce coffee and soybeans are different.
00:24
Brazil can produce coffee in 60 minutes of work where they can choose to produce soy, in 20 minutes of work.
00:32
An average worker in peru can produce an ounce of soybeans in 50 minutes, or they can produce an ounce of coffee in 75 minutes, right? so you can also say there are 7 ,500 minutes each, but this actually won't matter in any particular way.
00:52
It's irrelevant to the structure.
00:54
So the key is now to think about these are the costs, right? this table is a table.
01:00
It's a table of costs.
01:04
So from brazil's perspective, right, if we were to think about the cost of these things, brazil faces if it chooses to produce one coffee, which i'll call c, c for coffee, and i'll call soybeans s, it costs it three soybeans because in the 60 minutes it takes to produce one coffee, it could produce three soybeans, three times 20 is 60.
01:30
For peru, the ratio is a little bit different, right? now, if peru produces one coffee, it only gives up 1 .5 soybeans, right? because in the 75 minutes, it takes peru to produce coffee, it can produce only 1 .5 units of soybeans.
01:52
So we look at these and we say that peru has what is called comparative advantage...